Harvard is worried about capitalism. Not, mind you, because it’s struggling financially. Harvard gets a 10 percent return on its endowment every year. No, Harvard is worried because people increasingly don’t seem to like capitalism.
Last week Nitin Nohria, the dean of Harvard Business School (HBS), shared his concerns with the Harvard Crimson. In the interview Nohria cited “erosion of faith in capitalism” and “underlying distrust in the United States’ economic framework” as a major concern for HBS.
Widespread dissatisfaction with capitalism is no secret. An oft-cited Gallup poll shows less than half of people aged 18 to 29 had a positive view of capitalism in 2018. A recent Rand study entitled “Truth Decay” reports “widespread uncertainty and anxiety” throughout the United States. The fact that Bernie Sanders, a democratic socialist, is currently the Democratic Party’s frontrunner for the 2020 presidential election would also seem to confirm growing anticapitalist sentiment.
It doesn’t take a mental leap to figure out why dissatisfaction with capitalism is growing. The OECD’s March 2019 report on the shrinking global middle class found widespread anger over a system in which “the cost of a middle class lifestyle is rising faster than middle incomes,” in which “each new generation has seen its chances of belonging to the middle income class fall.”
Findings like these are worrying for the global elite. They’re desperate to make people love capitalism again. Harvard Business School apparently feels particularly responsible. Dean Nohria says that “as a school that has often been associated with business, which is closely associated with capitalism,” HBS needs to ask, “what can we do to make sure that society’s trust in capitalism remains strong and can be rebuilt?”
A popular approach is to use capitalism to fix itself. One of HBS’s most popular courses is its second-year course “Re-Imagining Capitalism: Business and Big Problems.” The class explores how the big problems of society — income inequality, declining education systems, health care divides, political strife — “can be effectively addressed by high performing private firms.”
It’s not just Harvard business students who are puzzling over how to fix capitalism. Elites everywhere are throwing money at the problem through foundation grants and charitable giving. So far, nearly a 190 members of the super rich have signed up for Bill Gates and Warren Buffett’s Giving Pledge — a promise made by the uber wealthy to give away the majority of their wealth to philanthropic causes.
Since its founding nearly two decades ago, the Gates Foundation has become the gold standard for charitable giving, and Bill and Melinda Gates remain at the top of the list of Rich People Other Rich People Want To Be Like.
But it’s not always easy being at the top. In an interview for the New York Times Magazine celebrating the upcoming launch of her new book, Melinda Gates says she often feels “rage” over the injustices she witnesses in her work as a global philanthropist. To cope Gates says she “metabolizes” this rage to fuel her charitable efforts. Gates also finds solace in the growing number of billionaires who “want better outcomes for low-income people” — who “want to see things get better.” Indeed, many observers deem the past decade a second golden age of philanthropy.
The impulse to give away wealth rather than hide it in the Caymans is laudable to be sure. Nonetheless, we would be remiss if we failed to mention that billionaires aren’t giving away all that much relatively speaking. The Financial Times notes: “Investment returns are swelling the fortunes of the ultra-rich faster than they can give them away. Much faster.” The very rich have earned at least an 8 percent return annually on their investment portfolios over the past twenty years, yet they give away only about 1.2 percent of their fortunes each year.
One might look at this reaping and sowing mismatch and conclude that the Gates are on the right track — that we need more and bigger foundations so the rich have a ready outlet for when the charitable impulse strikes. This is certainly the FT’s conclusion — that the rich would give more if it were easier, so we need to scale up the philanthropy infrastructure to match “the vast fortunes of the 21st century.”
Yet, even viewing the “giving” of the rich in the most generous light, more and bigger foundations are not the answer. The uptick in billionaire-funded charitable ventures is the result of vastly increased inequality, not the solution to the problems that keep Dean Nohria up at night.
The current philanthropy boom is triggered by the massive and unequal expansion of wealth that has characterized the past two decades. The super-elite have become deeply concerned about both the long-term economic impacts of inequality, in terms of growth and innovation, and the political consequences of inequality — social unrest and demands for redistribution.
Philanthropy serves as a kind of release valve for capitalism by ameliorating some of its worst excesses. But it isn’t capable of solving the problems of the present moment, which are manifesting in a number of ways including a deepening dissatisfaction with capitalism itself.
The foundation model in which a handful of wealthy, enlightened elites harness the power of markets to solve poverty and inequality is deeply flawed, not least because foundations themselves are profoundly undemocratic.
Foundation dreams (charter schools, for example) are not our dreams. We don’t have a say in shaping them. The Gates Foundation, the Ford Foundation, and the dozens of others like them, are unregulated and unaccountable. While foundations receive a huge public subsidy in the form of tax breaks, they set the agenda. There is no democratic process through which citizens get to decide what foundations do with their money.
Yet democracy is precisely what people want in the present moment. Nascent progressive movements are demanding not only large-scale change in the provision of basic goods — healthcare, education — but also a seat at the table, a say in what the future looks like.
The power of elites to control this collective vision is rapidly dwindling. Perhaps it’s time someone told them.